Basic Vat Techniques

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SUMMARY FOR NOTES

SARS TO PAYROLL
CHAPTER 2 – VAT

INTRODUCTION TO VALUE ADDED TAX (VAT)

What is VAT?

VAT stands for Value Added Tax. Value Added Tax (VAT) is levied on the supply of goods and services by vendors or it is a tax businesses charge when they supply their goods and services. We have to pay VAT on most of the things that we buy.

In September 1991, South Africa replaced its general sales tax (GST) with a consumption-type value added tax (VAT). The VAT is administered with a rebate for intermediates and investment purchases.

At the retail level, sellers are charged the statutory VAT rate (currently 14% for all commodities except gold which is zero-rated so pays no VAT) and receive a rebate for the tax revenue paid on intermediate inputs. The net payment is the statutory VAT rate applied to only the value added for that commodity. This tax collection method encourages “self-policing”— producers are more likely to purchase intermediates from sellers who can verify that they have paid the value added taxes due.

When the VAT was initially introduced, there were concerns that it could not replace the GST as a source of government revenue. In addition, a VAT may affect producers’ input choices. When the VAT is administered with rebates for intermediate inputs, there is, in effect, a subsidy for intermediate input use. Producers may substitute intermediates for primary factors (land, labor and capital), affecting the return to factors and income distribution. Another concern is that the VAT, because it is an indirect tax that works through the price system, puts a larger burden of the tax on low-income households.

VAT CONCEPTS
Zero-rated items| Zero-rated items are goods or services which are taxed at a rate of 0%, e.g. milk, brown bread, maize, fruit, etc.| VAT-exempted items| These items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational services, etc.| Standard rate| In South Africa Standard-rated supplies are taxed at the rate of 14%.| VAT-able items| These items are goods or services that are subject to VAT.| VAT Output | VAT paid on items purchased and can be claimed back from SARS. It is VAT, which your company would charge on items, which it, sells. Thus a company could wish to sell an item and added to the amount a standard rate tax would be charged. | VAT Input| VAT on Sales and income and must be paid over to SARS. It is VAT that you pay on all your business expenses and for which you have a tax invoice. It also relate to VAT that is paid on other goods and services bought or rented for the business.| VAT Control | Is a summary of the VAT Input and Output and shows whether the business owes SARS money or whether SARS owes the business money.|

VAT CALCULATIONS

How to add VAT (Value Added Tax) to a price (14%)

This is the calculation you need to use when you know a PRICE BEFORE TAX (THE NET PRICE) but want to find out the PRICE AFTER TAX (THE GROSS PRICE).
VAT rate of 14%.|
Net price| Multiplied by| 1.14| = Gross price|
Price before tax| Multiplied by| 1.14| = Price after tax|

Calculations:

The VAT standard rate is rate of 14%

First, get the multiplier:
14 100% = 0.14
0.14 + 1 = 1.14

The multiplier is 1.14

So...|
Net price| Multiplied by| 1.14| = Gross price|
Price before tax (Net price)| Multiplied by| 1.14| = Price after tax (Gross price)| E.g.: | | | |
R100| Multiplied by| 1.14| = R114|
R100 + Tax| | | = R114 inc Tax|

How to deduct VAT from a price - (14%)

People can often add VAT to a figure, but when it comes to taking it off it is a problem.

So here it is...

Taking-off VAT (Tax) from a price

This is the calculation you need to use when you know a PRICE AFTER TAX (THE GROSS PRICE) but want to find out the PRICE BEFORE TAX (THE NET PRICE).

VAT rate of 14%.|
Gross price (price...
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